Beyond Austerity: The Democratic Horizon

April 25, 2012

Although many voices have expressed dismay at the advent of austerity measures, few people outside of the commentariat appear to know about any possible actions that government, other groups or individuals could take to constitute an alternative. By far the most common critique of austerity has been a kind of post-Keynesian “demand for demand” – the pumping of money into the economy by government so as to raise aggregate demand and replace the money that banks are failing to lend as they seek to replenish their balance sheets and remain cautious about extending credit. Austerity, such arguments usually go, may seem a rational response to government indebtedness, but this is an illusion. Because cutting back on government expenditure reduces demand, lowering spending, economic growth contracts and debt actually increases. Conversely, increasing spending, if it increases growth, increases tax receipts and erodes the national debt.

There is a lot of truth to the Keynesian case, but it needs to be expanded and qualified. Simply pumping money into the economy (which quantitative easing actually does represent) will not restore prosperity through growth, and if it does, then that growth would have significant downsides that need to be countered. The environmental contradictions of seeking growth, while greenhouse gas emissions soar, should be plain enough. But alongside that, evidence shows fairly clearly that economic growth on its own is not enough to ensure a fair and happy society. If growth entrenches inequality (as the “credit boom” of the 90s and 00s did), even if most people see their wealth rise, and jobs are relatively plentiful, inequality also has deleterious social effects – from rising crime, to teenage pregnancies and disparities in life expectancy. Consult the excellent “Spirit Level” by Wilkinson and Pickett for evidence in this regard.

In any case, there is no guarantee that raising spending in itself would restore growth. In a globalised world economy, money injected by government could be invested abroad or siphoned into tax havens. Building roads might once have allowed manufactured goods in the provinces to reach markets quicker, but now that manufacturing migrates to low wage economies elsewhere, such an infrastructural investment would not do much for growth. And, strikingly, in a country where the sole manufacturer of railway technology is both foreign owned and precariously situated, investing in rail may see profits migrate as well. Now, if stimulus funds are directed intelligently, towards items which promote the growth of new technologies and products that people want, then a Keynesian strategy would work, but Keynesianism in one country, is not a viable proposal. Labour, with their constant call for “growth” seem to offer little more than this. More imaginative policies are needed, and we will have to demand them.

One of the most promising ideas that activists could embrace is what the historian and pensions expert Robin Blackburn calls a “public utility finance system.” Writing soon after the credit crunch began, he outlined the idea noting that “The banks have been so dependent on the taxpayer and public support that there is an overwhelming case for large public stakes.” Although “nationalisation” of financial institutions has been a largely hands-off affair in the crisis, Blackburn argues convincingly that:

“The banks – large and small – could be obliged to issue shares equivalent to 40 per cent of their annual profits to a regional network of social funds. Using these funds as their security the regional funds could then draw up – in association with local elective bodies – a ten-year programme of productive investment, embracing both public and private ventures. Such a programme might include public universities and research institutes, Green energy schemes, and universal access to broadband and other informational systems.”

A bold assertion of public interest in steering the way in which capital is used by the major banks could be the basis for a thorough reshaping of Britain’s economy and society. Blackburn also suggests that a land tax on commercial property and a “share levy” which “requires corporations to issue shares annually worth 10 per cent of their profits to the regional network of public fund” could supplement the public utility finance system. Measures like this are politically possible and make economic sense. But they are politically unfeasible and sit awkwardly with the conventional wisdom, which is that only private financial expertise should direct investment in a post-socialist, neoliberal world. The only way we have of making them reality, is via the public assertion of demand – showing that we want them and believe that they can work.

Blackburn’s ideas have not been taken up by any major political parties. One measure that has greater traction within the system as it stands, however, is a thoroughgoing assault on tax havens and cross border financial transactions. The G20 has made a rhetorical commitment to a form of the “Tobin Tax” on currency transactions which could raise billions of dollars for development projects. When pressed, governments around the world find it hard to praise tax havens (despite their revealing acceptance of their growth over the past thirty years), although little concrete action has been taken thus far to rein in their activities. Yet national measures to restore demand and redirect the economy will founder if capital can flee easily to low tax jurisdictions, which do not have the responsibility to maintain large populations of real people – and whose inhabitants are made purely of paper and letterbox labels. Forms of capital controls are essential to ensure that national measures succeed – meaning that international coordination is critical. Activists should continue to press international organisations like the G20, IMF and Davos Summits, where deals should be made to control global capital flows and make globalisation work for people, rather than profits.

More radical measures may be desirable as well – such as making it illegal to hold bank accounts outside of the country if you wish to remain a permanent resident, as well as tight regulation of investment abroad. Those nations who suffered from the tornado of “hot money” which sparked the Russian and East Asian financial crises of the late 90s would approve of such ideas, but countries dependent upon tapping global financial flows (such as the tiny enclave of Britain known as the City of London) would not. Alliances between the peoples of the world have always made sense for the Left, and have always floundered somewhat, yet they have rarely been as apposite. Let’s build them for mutual aid and improvement, and make global interconnections work for social ends, not just corporate enrichment.

But back to “national” aims for a moment. One of the big obstacles that activist groups encounter is the charge that the expertise contained within the City powers the UK’s economy, leading the world in an “industry” – possibly the only sense in which the UK still leads anyone. You do not kill the goose which lays the golden egg. Well, on animal rights grounds, you might want to enlist a vet, but the point stands. So we must knock it down with our own proposals. Yes, the City contains expertise, and we should not want to denigrate the skills and work ethic of many analysts, traders and lawyers that work there. But we can make their skills work for socially and environmentally beneficial ends. Take the credit rating agencies as an example. Instead of rating corporations or nations on a narrow (and often misapplied) economic logic, credit raters could use their expertise to rate the environmental and social merits of companies. The three Es – economic, environmental and equity ratings could be supplied, allowing investors to see the true costs of their decisions. Top AAA ratings could only be bestowed upon those firms which treat the environment, their workers and customers fairly.

Analysts currently pondering arms companies could use their brains to assess the merits of wind farms, small holder marketing networks, fair trade stores and credit co-ops. The very same skills that they currently use to maximise profits for their bosses, could serve society in making good choices about the environment and equity in the future. This kind of suggestion is a useful strategy for activists. It is one way of dividing the status quo – a means of appropriating from the age of financialization what is useful, for the ecological age that we have to inhabit in the coming decades. Most people working in the City do not do so for the love of the job, and we should remember this. They are susceptible to optimism and the human spirit, just as we all are, yet hostility is all to common in activist discourses.

It is also important to offer concrete, realistic alternatives to the current system that people can understand and embrace. For example, the public utility finance system could be used to create a National Horticultural College – which can train urban food producers, smallholders and educationalists, helping to raise local food production. Local Community Workshops could also be funded – allowing apprentices and craftspeople access to expensive tools and training, running do-it-yourself courses (and fostering local resilience), providing a space for art exhibitions, community meetings and even the marketing of local foodstuffs.

Again, this is my own suggestion, but such workshops could be linked to a drive to re-skill the population, giving everyone who wants it the chance to master a skill and use it to benefit society. Working from the maxim that it takes 10,000 hours of practice to master a skill, the 10,000 hours project could ensure that everyone does not just learn skills, but can master them, be they carpenters, electricians, horticulturalists, dancers or even sportspeople. From the age of say, 13, when decent literacy and numeracy skills should have been instilled, people could embark upon a decade of training, with a guild-style system providing training and employment services. Such schemes are hardly pie in the sky. After all, technical proficiency was prized in much poorer conditions before industrialism set in. Mastery can be prized as a social asset, whereas now it is experienced as a spectacle.

This is no return to medievalism. Such educational reforms could be accompanied by the democratisation and popularisation of science as never before. High streets that now suffer from decay could become the site of local science centres – showcasing the fruits of research clearly, hosting talks and allowing for dialogue between the scientific professions and ordinary people. Demanding that scientific research be provided at low cost or free, would be a massive step forwards in this regard too. It isn’t hard to imagine high streets where local food co-ops, freecycling centres crafts showrooms and science centres co-exist. Yet we need to demand such changes. Currently, scientists are poached in large numbers by the financial system as analysts, programmers and traders. Reining in finance would free science graduates to take work elsewhere, either in a private or an expanded public capacity. Given the environmental threats that we face, we have never needed their expertise more, and we should make common cause with science.

When you begin to consider the possibilities, the room for action becomes nearly limitless. Take the legal profession as another example. To most people, the legal profession would seem quintessentially conservative, replete with wigs and gowns, the stylised jargon of the court and the archaic Inns of Court to supply fresh recruits. But lawyers are disciplined just as tightly by capital as other professionals. Many seek to use their skills for public benefit but find their opportunities limited by the demands of their bosses. However, it should not be impossible to organize legal co-operatives which are not for profit organisations specialising in serving the poor. The law, while a bulwark of the establishment, can also be conquered by the forces of progress, and reshaped to fit our needs. As anyone who has sought redress for being kettled or assaulted by a police officer while on a demo will attest, there are remarkable lawyers, not all of whom dream of being the next Tony Blair.

This has been a small sampling of ideas about how to present an alternative to austerity. Some of these suggestions are actually low cost alternatives to the status quo (such as promoting local resilience and self-reliance). I have not really discussed large scale infrastructure investments, but obviously these would be a major cost, even if lower arms budgets and corporate subsidies were taken into account. Yet offset against the cost of not decarbonising the economy, such measures appear paltry. Moreover, if an international impetus can be created towards reining in financial capital, and an environmental consensus can replace it, then governments will be rated less by how fast their GDP rises, than by how quickly their greenhouse gas emissions fall.

These are big “ifs.” But they are not as big as the “whens” that we need to keep in mind – when we turn financial investment to public purposes, when we abolish tax havens, when we repair shattered communities and when we change our lives to ensure that our grandchildren can live securely and master their own destinies. The big when, is the one we need to bear in mind most of all – when we take control.

This may be too abstract for those struggling in workplaces to protect their pensions, wages and jobs. But without demeaning such struggles (which should be waged as vigorously as possible and fully meeting power eyeball to eyeball), we need to raise our sights and demand a better world. We do need to go beyond reacting to cuts, to proposing a world in which the cuts become an anachronism, a bad memory of how things used to be done.